UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2025
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No.: 000-51826
MERCER INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
Washington
47-0956945
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
Suite 1120, 700 West Pender Street, Vancouver, British Columbia, Canada, V6C 1G8
(Address of office)
(604) 684-1099
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $1.00 per share
MERC
NASDAQ Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The Registrant had 66,982,506 shares of common stock outstanding as of July 29, 2025.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2025
(Unaudited)
QUARTERLY REPORT - PAGE 2
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except per share data)
Three Months EndedJune 30,
Six Months EndedJune 30,
2025
2024
Revenues
$
453,524
499,384
960,498
1,052,814
Costs and expenses
Cost of sales, excluding depreciation and amortization
444,047
439,220
874,294
897,402
Cost of sales depreciation and amortization
37,451
39,877
77,741
80,227
Selling, general and administrative expenses
30,430
29,789
60,134
61,490
Loss on disposal of investment in joint venture
—
23,645
Goodwill impairment
34,277
Operating loss
(58,404
)
(43,779
(51,671
(44,227
Other income (expenses)
Interest expense
(28,411
(26,843
(56,566
(54,402
(1,120
4,299
(1,305
9,238
Total other expenses, net
(29,531
(22,544
(57,871
(45,164
Loss before income taxes
(87,935
(66,323
(109,542
(89,391
Income tax recovery (provision)
1,864
(1,263
1,132
5,102
Net loss
(86,071
(67,586
(108,410
(84,289
Net loss per common share
Basic
(1.29
(1.01
(1.62
(1.26
Diluted
Dividends declared per common share
0.075
0.150
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars)
Three Months Ended June 30,
Other comprehensive income (loss)
Loss related to defined benefit pension plans
(269
(184
(531
(267
Income tax provision
(90
Loss related to defined benefit pension plans, net of tax
(357
Foreign currency translation adjustments
99,249
(14,611
133,586
(52,080
Other comprehensive income (loss), net of tax
98,980
(14,795
133,055
(52,437
Total comprehensive income (loss)
12,909
(82,381
24,645
(136,726
See accompanying Notes to the Interim Consolidated Financial Statements.
QUARTERLY REPORT - PAGE 3
INTERIM CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)
June 30,2025
December 31,2024
ASSETS
Current assets
Cash and cash equivalents
146,499
184,925
Accounts receivable, net
335,394
327,345
Inventories
415,444
361,682
Prepaid expenses and other
21,461
17,601
Assets classified as held for sale
18,805
18,451
Total current assets
937,603
910,004
Property, plant and equipment, net
1,338,386
1,254,715
Amortizable intangible assets, net
52,277
49,829
Operating lease right-of-use assets
6,531
7,598
Pension asset
8,707
9,378
Deferred income tax assets
21,469
17,778
Other long-term assets
13,403
13,630
Total assets
2,378,376
2,262,932
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and other
293,948
248,661
Pension and other post-retirement benefit obligations
772
732
Liabilities associated with assets held for sale
7,398
7,145
Total current liabilities
302,118
256,538
Long-term debt
1,526,743
1,473,986
12,645
11,134
Operating lease liabilities
3,902
4,793
Deferred income tax liabilities
74,027
74,772
Other long-term liabilities
12,450
11,934
Total liabilities
1,931,885
1,833,157
Shareholders’ equity
Common shares $1 par value; 200,000,000 authorized; 66,983,000 issued and outstanding (2024 – 66,871,000)
66,871
66,850
Additional paid-in capital
364,871
362,782
Retained earnings
112,463
230,912
Accumulated other comprehensive loss
(97,714
(230,769
Total shareholders’ equity
446,491
429,775
Total liabilities and shareholders’ equity
Commitments and contingencies (Note 14)
QUARTERLY REPORT - PAGE 4
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Common shares
Three Months Ended June 30:
Number(thousands of shares)
Amount,at ParValue
AdditionalPaid-inCapital
RetainedEarnings
AccumulatedOtherComprehensiveLoss
TotalShareholders’Equity
Balance as of March 31, 2025
363,637
203,558
(196,694
437,351
Shares issued on grants of restricted shares
112
21
(21
Stock compensation expense
1,255
Dividends declared
(5,024
Other comprehensive income
Balance as of June 30, 2025
66,983
Balance as of March 31, 2024
66,796
360,941
314,396
(168,494
573,639
54
(54
1,426
(5,015
Other comprehensive loss
Balance as of June 30, 2024
362,313
241,795
(183,289
487,669
Six Months Ended June 30:
Balance as of December 31, 2024
2,110
(10,039
Balance as of December 31, 2023
66,525
66,471
359,497
336,113
(126,671
635,410
Shares issued on grants of performance share units
325
(325
3,195
(10,029
Disposal of investment in joint venture
(4,181
QUARTERLY REPORT - PAGE 5
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from (used in) operating activities
Adjustments to reconcile net loss to cash flows from operating activities
Depreciation and amortization
37,523
39,941
77,878
80,345
Deferred income tax provision (recovery)
(1,632
7,322
(11,138
(6,104
Inventory impairment
11,000
Defined benefit pension plans and other post-retirement benefit plan expense
175
431
344
641
1,036
1,403
2,042
3,432
Foreign exchange transaction losses (gains)
9,361
(3,382
17,779
(6,831
Other
3,012
1,389
4,640
2,116
Defined benefit pension plans and other post-retirement benefit plan contributions
(288
(617
Changes in working capital
Accounts receivable
31,588
21,929
14,790
(41,800
(17,175
4,506
(24,066
4,595
Accounts payable and accrued expenses
(12,046
15,718
16,386
18,108
18,703
6,525
(8,760
5,473
Net cash from (used in) operating activities
(4,526
62,185
(7,515
32,991
Cash flows from (used in) investing activities
Purchase of property, plant and equipment
(24,331
(17,883
(44,413
(36,344
Proceeds from government grants
3,115
787
(1,557
(2,271
(1,335
(2,081
Net cash from (used in) investing activities
(22,773
(20,154
(42,633
(37,638
Cash flows from (used in) financing activities
Proceeds from (repayment of) revolving credit facilities, net
3,607
(44,965
25,361
(35,840
Dividend payments
(5,014
Payment of finance lease obligations
(2,405
(2,687
(4,913
(4,876
545
(614
(729
Net cash from (used in) financing activities
(3,268
(53,280
15,978
(46,459
Effect of exchange rate changes on cash and cash equivalents
(4,407
150
(4,256
287
Net decrease in cash and cash equivalents
(34,974
(11,099
(38,426
(50,819
Cash and cash equivalents, beginning of period
181,473
274,272
313,992
Cash and cash equivalents, end of period
263,173
Supplemental cash flow disclosure:
Cash paid for interest
28,209
16,813
53,415
51,529
Cash paid for income taxes
12,679
4,522
29,591
12,695
Supplemental schedule of non-cash investing and financing activities:
Leased production and other equipment
4,072
4,131
5,460
8,645
QUARTERLY REPORT - PAGE 6
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
Nature of Operations and Basis of Presentation
The Interim Consolidated Financial Statements contained herein include the accounts of Mercer International Inc. (“Mercer Inc.”) and all of its subsidiaries (collectively the “Company”). Mercer Inc. owns 100% of its subsidiaries. The Company’s shares of common stock are quoted and listed for trading on the NASDAQ Global Select Market.
The Interim Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). The consolidated balance sheet information as of December 31, 2024 was derived from the Company’s audited Consolidated Financial Statements, but does not contain all of the footnote disclosures from the annual Consolidated Financial Statements. The footnote disclosure included herein has been prepared in accordance with accounting principles generally accepted for interim financial statements in the United States (“GAAP”). The unaudited Interim Consolidated Financial Statements should be read together with the audited Consolidated Financial Statements and accompanying notes included in the Company’s latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2024. In the opinion of the Company, the unaudited Interim Consolidated Financial Statements contained herein have been prepared on a consistent basis with the audited Consolidated Financial Statements and accompanying notes included in the Company’s latest Annual Report on Form 10‑K for the fiscal year ended December 31, 2024 and contain all adjustments necessary for a fair statement of the results of the interim periods included. The results for the periods included herein may not be indicative of the results for the entire year.
In these Interim Consolidated Financial Statements, unless otherwise indicated, all amounts are expressed in United States dollars (“U.S. dollars” or “$”). The symbol “€” refers to euros and the symbol “C$” refers to Canadian dollars.
Use of Estimates
Preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant management judgment is required in determining the accounting for, among other things, future cash flows associated with impairment testing for goodwill and long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, revenues under long-term contracts, inventory impairment, assets and liabilities classified as held for sale and the fair value of disposal groups, legal liabilities and contingencies. Actual results could differ materially from these estimates and changes in these estimates are recorded when known.
New Accounting Pronouncements
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09, which requires additional disaggregation of the reconciliation between the statutory and effective tax rate for an entity and of income taxes paid. The amendments improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. The Company continues to assess the impact of ASU 2023-09.
QUARTERLY REPORT - PAGE 7
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU 2024-03, which expands disclosures about specific expense categories presented on the face of the income statement and addresses requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation and amortization) in commonly presented expense captions (such as cost of sales and selling, general and administrative expenses). ASU 2024-03 is effective for fiscal years beginning after December 15, 2026 and interim periods thereafter with early adoption permitted. The Company is currently assessing the impact of ASU 2024-03.
Note 2. Assets and Liabilities Classified as Held for Sale
The Company continues to actively market the sandalwood business and expects a sale to occur within the next 12 months. Accordingly, the assets and associated liabilities of the business, referred to as the “disposal group”, continue to be classified as held for sale.
The disposal group’s estimated fair value was determined using Level 3 inputs based on preliminary indicative offers from third parties. The following summarizes the major classes of assets and liabilities classified as held for sale as of June 30, 2025.
6,270
853
16,962
3,248
Operating lease right-of-use-assets
5,182
Sandalwood tree plantations
25,708
Impairment reserve
(39,418
2,342
5,056
Note 3. Inventories
Inventories as of June 30, 2025 and December 31, 2024, were comprised of the following:
Raw materials
145,352
131,396
Finished goods
124,361
101,121
Spare parts and other
145,731
129,165
For the three months ended June 30, 2025, the Company recorded inventory impairment charges of $10,000 against raw materials inventory and $1,000 against finished goods inventory as a result of low hardwood pulp prices. The inventory impairment charges are recorded in “Cost of sales, excluding depreciation and amortization” in the Interim Consolidated Statements of Operations.
For the three and six months ended June 30, 2024, there were no inventory impairment charges recorded.
QUARTERLY REPORT - PAGE 8
Note 4. Accounts Payable and Other
Accounts payable and other as of June 30, 2025 and December 31, 2024, was comprised of the following:
Trade payables
78,742
53,610
Accrued expenses
97,132
73,755
Interest payable
33,523
33,312
Income tax payable
14,616
30,459
Payroll-related accruals
28,003
24,100
Wastewater fee (a)
9,175
6,324
Finance lease liability
11,957
9,415
Operating lease liability
2,700
2,874
18,100
14,812
Note 5. Debt
Debt as of June 30, 2025 and December 31, 2024, was comprised of the following:
Maturity
Senior notes (a)
12.875% senior notes
2028
400,000
5.125% senior notes
2029
875,000
Credit arrangements
€370.1 million German joint revolving credit facility (b)
2027
196,310
168,822
C$160.0 million Canadian joint revolving credit facility (c)
20,891
347
€2.6 million demand loan (d)
54,364
48,214
1,546,565
1,492,383
Less: unamortized senior note issuance costs
(7,865
(8,982
Less: finance lease liability due within one year
(11,957
(9,415
The maturities of the principal portion of the senior notes and credit arrangements as of June 30, 2025 were as follows:
Senior Notes and Credit Arrangements
2026
217,201
1,492,201
Certain of the Company’s debt instruments were issued under agreements which, among other things, may limit its ability and the ability of its subsidiaries to make certain payments, including dividends. These limitations are subject to specific exceptions. As of June 30, 2025, the Company was in compliance with the terms of its debt agreements.
QUARTERLY REPORT - PAGE 9
The following table presents the redemption prices (expressed as percentages of principal amount) and the redemption periods of the Senior Notes:
2028 Senior Notes
2029 Senior Notes
12 Month Period Beginning
Percentage
October 1, 2025
106.438%
February 1, 2025
101.281%
October 1, 2026
103.219%
February 1, 2026 and thereafter
100.000%
October 1, 2027 and thereafter
QUARTERLY REPORT - PAGE 10
Note 6. Pension and Other Post-Retirement Benefit Obligations
Defined Benefit Plans
Pension benefits are based on employees’ earnings and years of service. The defined benefit plans are funded by contributions from the Company based on actuarial estimates and statutory requirements. The components of the net benefit costs for the Celgar and Peace River defined benefit plans, in aggregate for the three and six months ended June 30, 2025 and 2024 were as follows:
Pension
Other Post-RetirementBenefits
Service cost
671
36
687
31
Interest cost
1,015
111
966
115
Expected return on plan assets
(1,389
(1,184
Amortization of unrecognized items
(82
(187
20
(204
Net benefit costs (gains)
215
(40
489
(58
Six Months Ended June 30,
1,318
70
1,384
63
1,995
219
1,946
232
(2,727
(2,717
(163
(368
144
(411
423
(79
757
(116
The components of the net benefit costs (gains) other than service cost are recorded in “Other income (expenses)” in the Interim Consolidated Statements of Operations. The amortization of unrecognized items relates to actuarial losses (gains) and prior service costs.
Defined Contribution Plan
Effective December 31, 2008, the defined benefit plans at the Celgar mill were closed to new members and the service accrual ceased. Effective January 1, 2009, the members began to receive pension benefits, at a fixed contractual rate, under a new defined contribution plan. During the three and six months ended June 30, 2025, the Company made contributions of $402 and $613, respectively, to this plan (2024 – $318 and $638).
Multiemployer Plan
The Company participates in a multiemployer plan for the hourly-paid employees at the Celgar mill. The contributions to the plan are determined based on a percentage of pensionable earnings pursuant to a collective bargaining agreement. The Company has no current or future contribution obligations in excess of the contractual contributions. During the three and six months ended June 30, 2025, the Company made contributions of $683 and $1,389, respectively, to this plan (2024 – $613 and $1,134).
QUARTERLY REPORT - PAGE 11
Note 7. Income Taxes
Differences between the U.S. Federal statutory rate and the Company’s effective tax rate for the three and six months ended June 30, 2025 and 2024 were as follows:
U.S. Federal statutory rate
21%
Income tax recovery using U.S. Federal statutory rate on loss before income taxes
18,467
13,928
23,004
18,772
Tax differential on foreign loss
2,252
3,482
1,325
2,895
Effect of foreign earnings (a)
3,413
(7,806
Valuation allowance
(19,896
7,767
(27,138
5,159
Non-deductible goodwill impairment
(10,239
True-up of prior year taxes
362
(3,925
1,113
(2,689
Annual effective tax rate adjustment
(2,600
(6,000
3,600
(4,300
Change in tax rate
(15
(418
1,460
Other, net
(119
1,530
(354
1,850
Comprised of:
Current income tax recovery (provision)
6,059
(10,006
(1,002
Deferred income tax recovery (provision)
1,632
(7,322
11,138
6,104
Note 8. Shareholders’ Equity
Dividends
During the six months ended June 30, 2025, the Company’s board of directors declared the following:
Date Declared
Dividend Per Common Share
Amount
February 20, 2025
5,015
May 1, 2025
5,024
10,039
Stock Based Compensation
The Company’s stock incentive plan consists of stock options, restricted stock units (“RSUs”), deferred stock units (“DSUs”), restricted shares, performance shares, performance share units (“PSUs”) and stock appreciation rights. During the three and six months ended June 30, 2025, there were no issued and outstanding stock options, RSUs, performance shares or stock appreciation rights. In June 2025, the Company registered an additional 2.5 million shares under its stock incentive plan. As of June 30, 2025, after factoring in all allocated shares, there remain approximately 2.6 million common shares available for grant.
QUARTERLY REPORT - PAGE 12
The following table summarizes non-vested PSU activity during the period:
Number of PSUs
Balance as of January 1, 2025
4,379,461
Granted
2,241,640
Forfeited
(1,452,061
5,169,040
The following table summarizes non-vested restricted share and DSU activity during the period:
Equity Based Awards
Liability Based Awards
Number of Restricted Shares
Number of Equity DSUs
Number of Cash Only DSUs
21,054
50,397
31,581
111,732
101,956
55,866
Vested
(21,054
(50,397
(31,581
There were 93,759 Equity DSUs granted to directors that were vested but not settled as of June 30, 2025.
Note 9. Net Loss Per Common Share
The reconciliation of basic and diluted net loss per common share for the three and six months ended June 30, 2025 and 2024 was as follows:
Basic and diluted
Weighted average number of common shares outstanding:
Basic (a)
66,914,282
66,816,843
66,903,741
66,729,416
QUARTERLY REPORT - PAGE 13
The calculation of diluted net loss per common share does not assume the exercise of any instruments that would have an anti-dilutive effect on net loss per common share. Non-vested instruments excluded from the calculation of net loss per common share because they were anti-dilutive for the three and six months ended June 30, 2025 and 2024 were as follows:
PSUs
4,828,019
Restricted shares
Equity DSUs
93,760
Note 10. Accumulated Other Comprehensive Loss
The change in the accumulated other comprehensive loss by component (net of tax) for the three and six months ended June 30, 2025 and 2024 was as follows:
Foreign Currency Translation Adjustments
Defined Benefit Pension and Other Post-Retirement Benefit Items
Total
(215,660
18,966
Other comprehensive income before reclassifications
Amounts reclassified
(116,411
18,697
(183,074
14,580
Other comprehensive loss before reclassifications
(197,685
14,396
(249,997
19,228
(145,605
18,934
(52,170
Note 11. Related Party Transactions
For the three and six months ended June 30, 2025, services from the Company’s 20% owned logging and chipping operation were $805 and $3,774, respectively, (2024 – $1,071 and $4,195) and as of June 30, 2025, the Company had a payable balance to the operation of $158 (December 31, 2024 – receivable of $348).
QUARTERLY REPORT - PAGE 14
For the three and six months ended June 30, 2025, services from the Company’s 26% owned wood purchasing operation were $3,434 and $5,662, respectively, (2024 – $1,367 and $2,315) and as of June 30, 2025, the Company had a payable balance to the operation of $100 (December 31, 2024 – receivable of $50).
Note 12. Segment Information
The Company is managed based on the primary products it manufactures: pulp and solid wood. The Company’s four pulp mills are aggregated into the pulp segment. The Friesau sawmill, the Torgau facility and the mass timber facilities are aggregated into the solid wood segment. The operating results for the pulp and solid wood segments are regularly reviewed by the Company’s chief operating decision maker (the “CODM”) to assess segment performance and to make decisions about resource allocation. The Company’s CODM is the Chief Executive Officer.
Revenues between segments are accounted for at prices that approximate fair value. These include revenues from the sale of residual fiber from the solid wood segment to the pulp segment for use in the pulp production process and from the sale of residual fuel from the pulp segment to the solid wood segment for use in energy production.
Change in segment measure of profit or loss
In 2024, the Company changed its segment measure from operating income (loss) to net income (loss) before interest, tax, depreciation and amortization and impairments of long-lived assets (“Segment Operating EBITDA”). The CODM uses Segment Operating EBITDA as the primary measure in assessing the operating performance of each reportable segment through periodic reviews and comparison of segment operating trends and identifying strategies to improve the allocation of resources amongst the reportable segments. Segment Operating EBITDA is different from operating income (loss) as it excludes depreciation and amortization and impairment of long-lived assets, as those items are not considered indicative of ongoing core operations. Comparative periods have been recast to conform with the current period’s presentation.
Total assets and the income or loss items following Segment Operating EBITDA, other than depreciation, amortization and impairment of long-lived assets, are not allocated to the segments, as those items are reviewed separately by management.
QUARTERLY REPORT - PAGE 15
Information about certain segment data for the three and six months ended June 30, 2025 and 2024 was as follows:
Three Months Ended June 30, 2025
Pulp
Solid Wood
Total of Segments (a)
Revenues from external customers
332,308
117,268
449,576
Intersegment revenues
165
11,548
11,713
332,473
128,816
461,289
Less segment expenses:
Fiber
167,000
69,975
Maintenance (b)
47,097
12,140
Freight
32,907
13,364
Labor (c)
24,947
15,038
Chemicals
32,044
Energy
11,828
4,771
Other (d)
26,912
18,389
Segment Operating EBITDA
(10,262
(4,861
(15,123
15,802
8,549
24,351
Reconciliation to loss before income taxes
Total of segments’ Segment Operating EBITDA
Segment depreciation and amortization
(24,689
(12,664
(37,353
Other income
Corporate expenses and eliminations
(5,928
Consolidated loss before income taxes
QUARTERLY REPORT - PAGE 16
Corporate and Other
Consolidated
Revenues from external customers by major products
313,705
Lumber
66,332
Energy and chemicals
18,603
4,242
1,823
24,668
Manufactured products (a)
12,418
Pallets
26,586
Biofuels (b)
5,095
Wood residuals
2,595
2,125
4,720
Total revenues from external customers
3,948
Revenues from external customers by geography (c)
U.S.
32,179
40,275
607
73,061
Foreign countries
Germany
67,531
47,028
220
114,779
China
130,411
113
130,524
Other countries
102,187
29,852
3,121
135,160
300,129
76,993
3,341
380,463
QUARTERLY REPORT - PAGE 17
Three Months Ended June 30, 2024
367,371
130,238
497,609
9,149
9,260
367,482
139,387
506,869
129,336
63,594
68,833
10,807
33,699
14,491
22,761
14,320
28,036
10,635
7,312
42,508
25,739
31,674
3,124
34,798
13,361
4,459
17,820
(27,193
(12,526
(39,719
(34,277
(4,581
QUARTERLY REPORT - PAGE 18
346,808
53,910
20,563
4,301
1,775
26,639
35,381
26,741
8,155
1,750
46,022
57,133
517
103,672
85,218
48,299
133,736
99,347
390
99,737
136,784
24,416
1,039
162,239
321,349
73,105
1,258
395,712
QUARTERLY REPORT - PAGE 19
Six Months Ended June 30, 2025
713,388
239,988
953,376
509
21,569
22,078
713,897
261,557
975,454
305,284
136,343
89,063
21,333
68,339
26,688
49,140
29,685
60,105
26,235
13,195
76,121
39,466
39,610
(5,153
34,457
29,562
14,830
44,392
(52,911
(24,624
(77,535
Other expenses
(8,593
QUARTERLY REPORT - PAGE 20
670,669
131,718
42,719
9,108
4,997
56,824
31,242
49,763
14,319
3,838
5,963
7,122
71,027
87,585
1,249
159,861
144,589
93,657
381
238,627
267,981
506
268,487
229,791
58,240
5,492
293,523
642,361
152,403
5,873
800,637
QUARTERLY REPORT - PAGE 21
Six Months Ended June 30, 2024
799,775
249,261
1,049,036
271
18,871
19,142
800,046
268,132
1,068,178
280,122
127,197
91,551
21,843
77,383
27,872
45,481
28,442
61,434
31,099
14,104
Purchase of pulp from CPP (d)
19,707
Other (e)
93,130
46,445
100,139
2,229
102,368
22,782
13,464
36,246
(54,566
(25,337
(79,903
(23,645
(8,770
QUARTERLY REPORT - PAGE 22
755,103
109,792
44,672
9,139
3,778
57,589
52,094
54,761
19,409
4,066
83,611
101,328
1,425
186,364
164,742
102,375
360
267,477
282,146
1,199
283,345
269,276
44,359
1,993
315,628
716,164
147,933
2,353
866,450
Note 13. Financial Instruments and Fair Value Measurement
Due to their short-term maturity, the carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable and other approximates their fair value. The estimated fair values of the Company’s outstanding debt under the fair value hierarchy as of June 30, 2025 and December 31, 2024 were as follows:
Fair value measurements as of
June 30, 2025 using:
Description
Level 1
Level 2
Level 3
Revolving credit facilities
Senior notes
1,119,442
1,336,643
December 31, 2024 using:
169,169
1,186,921
1,356,090
The carrying value of the revolving credit facilities classified as Level 2 approximates the fair value as the variable interest rates reflect current interest rates for financial instruments with similar characteristics and maturities.
The fair value of the senior notes classified as Level 2 was determined using quoted prices in a dealer market, or using recent market transactions. The Company’s senior notes are not carried at fair value in the Interim Consolidated Balance Sheets as of June 30, 2025 or December 31, 2024. However, fair value disclosure is required. The carrying value of the Company’s senior notes, net of unamortized note issuance costs, was $1,267,135 as of June 30, 2025 (December 31, 2024 – $1,266,018).
QUARTERLY REPORT - PAGE 23
Credit Risk
The Company’s exposure to credit losses may increase if its customers' production and other costs are adversely affected by inflation, interest rate levels and tariffs. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables if the cash flows of the Company’s customers are adversely impacted by inflation, interest rate levels and tariffs. As of June 30, 2025, the Company has not had significant credit losses.
As of June 30, 2025, the carrying amount of cash and cash equivalents of $146,499 and accounts receivable of $335,394 recorded in the Interim Consolidated Balance Sheet, net of any allowances for losses, represent the Company’s maximum exposure to credit risk.
Note 14. Commitments and Contingencies
QUARTERLY REPORT - PAGE 24
NON-GAAP FINANCIAL MEASURES
This quarterly report on Form 10-Q contains “non-GAAP financial measures”, that is, financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measure calculated and presented in accordance with the generally accepted accounting principles in the United States, referred to as “GAAP”. Specifically, we make use of the non-GAAP financial measure “Operating EBITDA”.
We define Operating EBITDA as operating loss plus depreciation and amortization and long-lived asset impairment charges. We use Operating EBITDA as a benchmark measurement of our own operating results and as a benchmark relative to our competitors. We consider it to be a meaningful supplement to operating loss as a performance measure primarily because depreciation expense and long-lived asset impairment charges are not actual cash costs, and depreciation expense varies widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.
Operating EBITDA does not reflect the impact of a number of items that affect our net loss, including financing costs, income taxes and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net loss or operating loss as a measure of performance, or as an alternative to net cash from (used in) operating activities as a measure of liquidity. Operating EBITDA is an internal measure and therefore may not be comparable to other companies.
Operating EBITDA has significant limitations as an analytical tool, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Operating EBITDA does not reflect: (i) our cash expenditures, or future requirements, for capital expenditures or contractual commitments; (ii) changes in, or cash requirements for, working capital needs; (iii) the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our outstanding debt; (iv) the impact of realized or marked to market changes in our derivative positions, which can be substantial; and (v) the impact of impairment charges against our investments or assets. Because of these limitations, Operating EBITDA should only be considered as a supplemental performance measure and should not be considered as a measure of liquidity or cash available to us to invest in the growth of our business. Because all companies do not calculate Operating EBITDA in the same manner, Operating EBITDA as calculated by us may differ from Operating EBITDA or EBITDA as calculated by other companies. We compensate for these limitations by using Operating EBITDA as a supplemental measure of our performance and by relying primarily on our GAAP financial statements.
Operating EBITDA is a non-GAAP financial measure at the consolidated level and is considered different from Operating EBITDA at the segment level, referred to as “Segment Operating EBITDA”, which is our single measure of segment profit or loss presented in our financial statements under GAAP. For more information on Segment Operating EBITDA, refer to the segment information note within our consolidated financial statements.
QUARTERLY REPORT - PAGE 25
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this document: (i) unless the context otherwise requires, references to “we”, “our”, “us”, the “Company” or “Mercer” mean Mercer International Inc. and its subsidiaries; (ii) references to “Mercer Inc.” mean the Company excluding its subsidiaries; (iii) information is provided as of June 30, 2025, unless otherwise stated; (iv) our reporting currency is dollars and references to “€” mean euros and “C$” mean Canadian dollars; (v) “ADMTs” mean air-dried metric tonnes; (vi) “CLT” mean cross-laminated timber; (vii) “glulam” mean glue-laminated timber; (viii) “m3” mean cubic meters; (ix) “NBSK” mean northern bleached softwood kraft; (x) “NBHK” mean northern bleached hardwood kraft; (xi) “MW” mean megawatts and “MWh” mean megawatt hours; (xii) “Mfbm” mean thousand board feet of lumber and “MMfbm” mean million board feet of lumber; and (xiii) our lumber metrics are converted from m3 to Mfbm using a conversion ratio of 1.6 m3 of lumber equaling one Mfbm, which is the ratio commonly used in the industry.
Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide and percentages may not precisely reflect the absolute figure.
The following discussion and analysis of our results of operations and financial condition for the three and six months ended June 30, 2025 should be read in conjunction with our Interim Consolidated Financial Statements and related notes included in this quarterly report, as well as our most recent annual report on Form 10-K for the fiscal year ended December 31, 2024 filed with the Securities and Exchange Commission, referred to as the “SEC”.
Results of Operations
General
We have two reportable operating segments:
Each segment offers primarily different products and requires different manufacturing processes, technology and sales and marketing.
Current Market Environment
In the second quarter of 2025, our NBSK pulp sales realizations remained strong in both North America and Europe compared to the first quarter of 2025 driven by steady demand and supply constraints. In China, both our NBSK and NBHK pulp sales realizations decreased in the second quarter of 2025 compared to the first quarter of 2025 as a result of weak demand driven by global trade policy uncertainty. In North America, NBHK pulp sales realizations modestly increased in the second quarter of 2025 compared to the first quarter of 2025 due to stable demand.
In the second quarter of 2025, our lumber sales realizations increased in both the U.S. and Europe compared to the first quarter of 2025 due to stable demand and reduced supply.
As of June 30, 2025, the third-party industry quoted NBSK pulp list prices in Europe and North America were approximately $1,510 per ADMT and $1,790 per ADMT, respectively, and the third-party industry quoted NBSK pulp net price in China was approximately $690 per ADMT. Prices for China are net of discounts, allowances and rebates.
QUARTERLY REPORT - PAGE 26
We currently expect NBSK pulp prices to decrease in all our key markets in the third quarter of 2025 driven by slower demand as a result of seasonality and a weakened economic environment caused by global trade policy uncertainty. For NBHK pulp prices, we currently expect relatively steady prices in the third quarter of 2025.
In the third quarter of 2025, we currently expect lumber prices to modestly increase in Europe primarily driven by strong demand and higher fiber costs. In the U.S., we currently expect higher prices in the third quarter of 2025 as a result of lower supply and the impact from duties imposed on Canadian producers. In the third quarter of 2025, we currently expect pallet prices to remain flat due to continued weak economic conditions in Europe and mass timber prices to remain relatively steady.
Per unit fiber costs for the pulp segment increased in the second quarter of 2025 compared to the first quarter of 2025 primarily as a result of strong demand and steady supply. For the third quarter of 2025, we currently expect per unit fiber costs to be lower for our German pulp mills due to reduced demand and relatively stable for our Canadian pulp mills.
Per unit fiber costs for the solid wood segment increased in the second quarter of 2025 compared to the first quarter of 2025 as a result of strong demand in Germany. For the third quarter of 2025, we currently expect modestly higher per unit fiber costs for our solid wood segment due to a temporary reduction in regional logging in Germany and continued strong demand.
Demand and pricing for our products may be further impacted by ongoing developments in international trade policies, including tariffs proposed or imposed by the United States on goods originating from Canada, the European Union and other countries, and related countermeasures. As these developments are ongoing and subject to change, it is difficult to predict such impact at this time. However, in the second quarter of 2025, uncertainties surrounding these developments have impacted demand for pulp in China. See Item 1A. Risk Factors in our annual report on Form 10-K for the fiscal year ended December 31, 2024 for further information.
QUARTERLY REPORT - PAGE 27
Summary Financial Highlights
(in thousands, other than per share amounts)
Statement of Operations Data
Pulp segment
Solid wood segment
Corporate and other
Total revenues
Pulp Segment Operating EBITDA(1)
Solid wood Segment Operating EBITDA(1)
(5,758
(4,359
(8,250
(8,328
Operating EBITDA(2)
(20,881
30,439
26,207
94,040
Common shares outstanding at period end
(in thousands)
Income tax provision (recovery)
(1,864
1,263
(1,132
(5,102
28,411
26,843
56,566
54,402
Other expenses (income)
1,120
(4,299
1,305
(9,238
Add: Depreciation and amortization
Add: Loss on disposal of investment in joint venture
Add: Goodwill impairment
Operating EBITDA
QUARTERLY REPORT - PAGE 28
Selected Production, Sales and Other Data
Pulp Segment
Pulp production ('000 ADMTs)
NBSK
403.2
357.8
773.6
811.0
NBHK
53.9
63.9
142.4
149.6
Annual maintenance downtime ('000 ADMTs)
33.2
64.9
62.9
Annual maintenance downtime (days)
23
37
45
Pulp sales ('000 ADMTs)
361.4
377.6
749.5
865.8
65.3
55.7
155.1
133.2
Average NBSK pulp prices ($/ADMT)(1)
Europe
1,553
1,602
1,552
1,501
734
811
764
778
North America
1,820
1,697
1,787
1,568
Average NBHK pulp prices ($/ADMT)(1)
533
735
556
698
1,310
1,437
1,289
1,330
Average pulp sales realizations ($/ADMT)(2)
758
771
766
575
701
572
660
Energy production ('000 MWh)(3)
511.1
493.9
1,038.1
1,070.4
Energy sales ('000 MWh)(3)
183.1
185.0
381.8
405.5
Average energy sales realizations ($/MWh)(3)
83
84
96
86
Solid Wood Segment
Production (MMfbm)
120.2
111.4
248.2
238.4
Sales (MMfbm)
120.6
116.6
251.5
238.0
Average sales realizations ($/Mfbm)
550
463
524
461
Production and sales ('000 MWh)
32.7
33.7
68.8
72.4
Average sales realizations ($/MWh)
130
128
132
126
Manufactured products(4)
Production ('000 m3)
7.8
11.1
14.9
18.4
Sales ('000 m3)
8.1
11.2
14.0
15.2
Average sales realizations ($/m3)
2,942
1,955
3,128
Production ('000 units)
2,132.9
2,547.8
4,229.3
5,604.1
Sales ('000 units)
2,248.0
2,570.4
4,376.8
5,486.7
Average sales realizations ($/unit)
12
10
11
Biofuels(5)
Production ('000 tonnes)
25.2
41.0
69.7
78.9
Sales ('000 tonnes)
19.6
40.4
59.9
88.6
Average sales realizations ($/tonne)
260
202
239
Average Spot Currency Exchange Rates
$ / €(6)
1.1342
1.0766
1.0943
1.0810
$ / C$(6)
0.7225
0.7310
0.7099
0.7362
QUARTERLY REPORT - PAGE 29
Consolidated – Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024
Total revenues for the second quarter of 2025 decreased by approximately 9% to $453.5 million from $499.4 million in the same quarter of 2024 primarily due to lower sales realizations and volumes from our pulp and manufactured products partially offset by higher lumber sales realizations.
Costs and expenses in the second quarter of 2025 decreased by approximately 6% to $511.9 million from $543.2 million in the same quarter of 2024 driven by fewer days of planned annual maintenance downtime in the second quarter of 2025 at our pulp mills. This decrease was partially offset by foreign exchange losses, higher per unit fiber costs and an $11.0 million non-cash impairment recognized against hardwood inventory at our Peace River mill. The foreign exchange losses resulted from the impact of a weaker dollar on the revaluation of dollar denominated accounts receivables held at our operations, and on our euro denominated costs and expenses compared to the same quarter of 2024. In the second quarter of 2024, costs and expenses included a non-cash goodwill impairment of $34.3 million related to the Torgau facility, which was recognized as a result of ongoing weakness in lumber, pallet and biofuels markets in Europe stemming from high interest rates and other economic conditions.
In the second quarter of 2025, cost of sales depreciation and amortization was relatively flat at $37.5 million compared to $39.9 million in the same quarter of 2024.
Selling, general and administrative expenses were relatively steady at $30.4 million in the second quarter of 2025 compared to $29.8 million in the same quarter of 2024.
In the second quarter of 2025, we had a negative foreign exchange impact of approximately $21.1 million on operating loss compared to the same quarter of 2024. This negative impact was primarily due to foreign exchange losses on the revaluation of dollar denominated accounts receivables held at our operations, as the dollar weakened relative to the euro and Canadian dollar at the end of the second quarter of 2025, and the negative effect of a weaker dollar on our euro denominated costs and expenses compared to the same quarter of 2024.
In the second quarter of 2025, our operating loss was $58.4 million compared to $43.8 million in the same quarter of 2024 primarily due to lower pulp and manufactured products sales realizations, negative foreign exchange impacts from a weaker dollar, higher per unit fiber costs and the non-cash impairment recognized against hardwood inventory. These adverse impacts were partially offset by fewer days of planned annual maintenance downtime in the second quarter of 2025 at our pulp mills and higher lumber sales realizations. In the second quarter of 2024, our operating loss included a non-cash goodwill impairment of $34.3 million related to the Torgau facility.
Interest expense was relatively flat at $28.4 million in the second quarter of 2025 compared to $26.8 million in the same quarter of 2024.
In the second quarter of 2025, other expenses were $1.1 million compared to other income of $4.3 million in the same quarter of 2024. Other expenses in the second quarter of 2025 primarily consisted of foreign exchange losses on the revaluation of dollar denominated cash held at our operations as the dollar weakened against the euro at the end of the second quarter of 2025 mostly offset by interest earned on cash. In the second quarter of 2024, other income primarily consisted of interest earned on cash and foreign exchange gains on the revaluation of dollar denominated cash held at our operations as the dollar strengthened at the end of the second quarter of 2024.
In the second quarter of 2025, we had an income tax recovery of $1.9 million, or an effective tax rate of 2%. In the same quarter of 2024, we had an income tax provision of $1.3 million on a loss before income taxes. Our effective tax rates were different from the statutory rates of the jurisdictions in which we operate as we do not recognize tax recoveries for certain entities which we do not expect to realize a tax benefit. In the second quarter of 2024, the effective tax rate was also impacted by the non-deductibility of the non-cash goodwill impairment.
In the second quarter of 2025, our net loss was $86.1 million, or $1.29 per share, compared to $67.6 million, or $1.01 per share, in the same quarter of 2024. The net loss in the second quarter of 2024 included the non-cash goodwill impairment of $34.3 million, or $0.51 per share.
In the second quarter of 2025, Operating EBITDA decreased to negative $20.9 million from positive $30.4 million in the same quarter of 2024 primarily as a result of lower pulp and manufactured products sales realizations, negative
QUARTERLY REPORT - PAGE 30
foreign exchange impacts from a weaker dollar, higher per unit fiber costs and the non-cash impairment recognized on hardwood inventory. These decreases were partially offset by fewer days of planned annual maintenance downtime at our pulp mills and higher lumber sales realizations.
Pulp Segment – Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024
Selected Financial Information
Pulp revenues
Energy and chemical revenues
Segment Operating EBITDA(1)
Pulp segment revenues, comprised of pulp, energy and chemical revenues, in the second quarter of 2025 decreased by approximately 10% to $332.3 million from $367.4 million in the same quarter of 2024 driven by lower pulp revenues.
Pulp revenues in the second quarter of 2025 decreased by approximately 10% to $313.7 million from $346.8 million in the same quarter of 2024 as a result of lower sales realizations and volumes.
Energy and chemical revenues in the second quarter of 2025 decreased by approximately 10% to $18.6 million from $20.6 million in the same quarter of 2024 primarily due to lower chemical sales realizations.
Total pulp production in the second quarter of 2025 increased by approximately 8% to 457,117 ADMTs compared with 421,692 ADMTs in the same quarter of 2024 primarily as a result of fewer days of planned annual maintenance downtime in the second quarter of 2025. In the second quarter of 2025, our pulp mills had 29 days of downtime (approximately 40,900 ADMTs) which included 23 days of planned annual maintenance and six additional days due to slower than expected start-up. In the same quarter of 2024, our pulp mills had 44 days of downtime (approximately 77,600 ADMTs) which included 37 days of planned annual maintenance and seven additional days due to slower than expected start-up.
We estimate that planned annual maintenance downtime in the second quarter of 2025 adversely impacted our Segment Operating EBITDA by approximately $26.4 million, comprised of approximately $19.4 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their financial results using International Financial Reporting Standards, referred to as “IFRS”, capitalize their direct costs of maintenance downtime.
In the third quarter of 2025, we currently expect a total of 18 days of planned annual maintenance downtime (approximately 19,600 ADMTs) at our pulp mills.
Total pulp sales volumes in the second quarter of 2025 were relatively flat at 426,731 ADMTs compared to 433,320 ADMTs in the same quarter of 2024.
In the second quarter of 2025, the third-party industry quoted average list price for NBSK pulp in Europe was relatively flat compared to the same quarter of 2024. In the second quarter of 2025, the third-party industry quoted average list price for NBSK pulp in North America increased from the same quarter of 2024 due to stronger demand and supply constraints. In the second quarter of 2025, the third-party industry quoted average net price for NBSK pulp in China decreased from the same quarter of 2024 as a result of weaker demand driven by the current economic climate and global trade policy uncertainty. Third-party industry quoted average list prices for NBSK pulp in Europe and North America were approximately $1,553 per ADMT and $1,820 per ADMT, respectively, in the second quarter of 2025 compared to approximately $1,602 per ADMT and $1,697 per ADMT, respectively, in the same quarter of 2024. Third-party industry quoted average net prices for NBSK pulp in China were approximately $734 per ADMT in the second quarter of 2025 compared to approximately $811 per ADMT in the same quarter of 2024. Prices quoted for
QUARTERLY REPORT - PAGE 31
China are net of discounts, allowances and rebates whereas quoted prices for Europe and North America are before applicable discounts, allowances and rebates.
In the second quarter of 2025, the third-party industry quoted average list price for NBHK pulp in North America decreased from the same quarter of 2024 due to weaker demand. In the second quarter of 2025, the third-party industry quoted average net price for NBHK pulp in China decreased from the same quarter of 2024 driven by weak demand due to the current economic climate and global trade policy uncertainty. Third-party industry quoted average list prices for NBHK pulp in North America were approximately $1,310 per ADMT in the second quarter of 2025 compared to approximately $1,437 per ADMT in the same quarter of 2024. Third-party industry quoted average net prices for NBHK pulp in China were approximately $533 per ADMT in the second quarter of 2025 compared to approximately $735 per ADMT in the same quarter of 2024.
Our average NBSK pulp sales realizations in the second quarter of 2025 decreased by approximately 7% to $758 per ADMT from $811 per ADMT in the same quarter of 2024 primarily due to lower net prices in China partially offset by higher prices in North America. In the second quarter of 2025, average NBHK pulp sales realizations decreased by approximately 18% to $575 per ADMT from $701 per ADMT in the same quarter of 2024 as a result of lower prices in China and North America.
In the second quarter of 2025, we had a negative foreign exchange impact of approximately $17.7 million on Segment Operating EBITDA compared to the same quarter of 2024. This negative impact was primarily due to foreign exchange losses on the revaluation of dollar denominated accounts receivables held at our operations, as the dollar weakened relative to the euro and Canadian dollar at the end of June 2025, and the negative impact of a weaker dollar on our euro denominated costs and expenses compared to the same quarter of 2024.
In the second quarter of 2025, we recorded a non-cash impairment of $11.0 million against hardwood inventory at our Peace River mill as a result of low hardwood pulp prices.
Costs and expenses in the second quarter of 2025 were relatively flat at $368.7 million compared to $364.0 million in the same quarter of 2024 as the negative foreign exchange impacts from a weaker dollar, the non-cash impairment recognized on hardwood inventory and higher per unit fiber costs were mostly offset by lower maintenance costs due to fewer days of planned annual maintenance downtime in the second quarter of 2025.
Overall average per unit fiber costs in the second quarter of 2025 increased by approximately 11% compared to the same quarter of 2024 primarily as a result of higher per unit fiber costs at our German mills due to reduced supply. Per unit fiber costs at our Canadian mills were relatively flat in the second quarter of 2025 compared to the same quarter of 2024. For the third quarter of 2025, we currently expect per unit fiber costs to be lower for our German pulp mills due to reduced demand and relatively stable for our Canadian pulp mills.
Transportation costs for our pulp segment in the second quarter of 2025 were relatively flat at $32.9 million compared to $33.7 million in the same quarter of 2024.
In the second quarter of 2025, Segment Operating EBITDA for our pulp segment decreased to negative $10.3 million from positive $31.7 million in the same quarter of 2024 as a result of lower pulp sales realizations, negative foreign exchange impacts from a weaker dollar, the non-cash impairment recognized on hardwood inventory and higher per unit fiber costs. These decreases were partially offset by lower maintenance costs due to fewer days of planned annual maintenance downtime in the second quarter of 2025.
QUARTERLY REPORT - PAGE 32
Solid Wood Segment – Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024
Lumber revenues
Energy revenues
Manufactured products revenues(1)
Pallet revenues
Biofuels revenues(2)
Wood residuals revenues
Segment Operating EBITDA(3)
Solid wood segment revenues in the second quarter of 2025 decreased by approximately 10% to $117.3 million from $130.2 million in the same quarter of 2024 primarily due to lower manufactured products revenues partially offset by higher lumber revenues.
In the second quarter of 2025, lumber revenues increased by approximately 23% to $66.3 million from $53.9 million in the same quarter of 2024 primarily as a result of higher sales realizations.
Energy, biofuels and wood residuals revenues in the second quarter of 2025 decreased by approximately 16% to $11.9 million from $14.2 million in the same quarter of 2024 primarily due to lower biofuels sales volumes.
In the second quarter of 2025, manufactured products revenues decreased by approximately 65% to $12.4 million from $35.4 million in the same quarter of 2024 driven by lower sales realizations and volumes as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.
Pallet revenues in the second quarter of 2025 were flat at $26.6 million compared to $26.7 million in the same quarter of 2024 due to continued weak economic conditions in Europe.
Lumber production in the second quarter of 2025 increased by approximately 8% to 120.2 MMfbm from 111.4 MMfbm in the same quarter of 2024 driven by the timing of planned maintenance downtime and higher production at our Torgau facility.
Lumber sales volumes in the second quarter of 2025 modestly increased by approximately 3% to 120.6 MMfbm from 116.6 MMfbm in the same quarter of 2024 as a result of higher production.
Average lumber sales realizations in the second quarter of 2025 increased by approximately 19% to $550 per Mfbm from $463 per Mfbm in the same quarter of 2024 due to lower supply and improved demand in both the U.S. and European markets. The U.S. market accounted for approximately 45% of our lumber revenues and approximately 40% of our lumber sales volumes in the second quarter of 2025. The majority of the balance of our lumber sales were to Europe.
Manufactured products sales realizations decreased to $1,318 per m3 in the second quarter of 2025 from $2,942 per m3 in the same quarter of 2024 as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.
Fiber costs were approximately 80% of our lumber cash production costs in the second quarter of 2025. In the second quarter of 2025, per unit fiber costs for lumber production increased by approximately 25% compared to the same
QUARTERLY REPORT - PAGE 33
quarter of 2024 due to strong demand. For the third quarter of 2025, we currently expect modestly higher per unit fiber costs due to a temporary reduction in regional logging in Germany and continued strong demand.
Transportation costs for our solid wood segment in the second quarter of 2025 decreased by approximately 8% to $13.4 million from $14.5 million in the same quarter of 2024 primarily as a result of lower freight rates.
In the second quarter of 2025, Segment Operating EBITDA for the solid wood segment decreased to negative $4.9 million from positive $3.1 million in the same quarter of 2024 primarily due to lower manufactured products sales realizations and higher per unit fiber costs partially offset by higher lumber sales realizations.
Consolidated – Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024
Total revenues for the first half of 2025 decreased by approximately 9% to $960.5 million from $1,052.8 million in the same period of 2024 driven by lower sales volumes and realizations from our pulp and manufactured products partially offset by higher lumber sales realizations.
Costs and expenses in the first half of 2025 decreased by approximately 8% to $1,012.2 million from $1,097.0 million in the same period of 2024 primarily as a result of lower pulp sales volumes. This decrease was partially offset by higher per unit fiber costs, foreign exchange losses and the non-cash impairment recognized against hardwood inventory at our Peace River mill in 2025. The foreign exchange losses resulted from the impact of a weaker dollar on the revaluation of dollar denominated accounts receivables held at our operations. In the first half of 2024, costs and expenses included a non-cash goodwill impairment of $34.3 million related to the Torgau facility, which was recognized as a result of ongoing weakness in lumber, pallet and biofuels markets in Europe stemming from high interest rates and other economic conditions, and a non-cash loss of $23.6 million in connection with the dissolution of the CPP joint venture.
In the first half of 2025, cost of sales depreciation and amortization was relatively steady at $77.7 million compared to $80.2 million in the same period of 2024.
Selling, general and administrative expenses were flat at $60.1 million in the first half of 2025 compared to $61.5 million in the same period of 2024.
In the first half of 2025, we had a negative foreign exchange impact of approximately $12.0 million on operating loss compared to the same period of 2024 primarily due to foreign exchange losses on the revaluation of dollar denominated accounts receivables held at our operations as the dollar weakened relative to the euro and Canadian dollar at the end of June 2025.
In the first half of 2025, our operating loss was $51.7 million compared to $44.2 million in the same period of 2024 as a result of higher per unit fiber costs, lower pulp and manufactured products sales realizations, negative foreign exchange impacts from a weaker dollar and the non-cash impairment recognized against hardwood inventory partially offset by higher lumber sales realizations. In the first half of 2024, our operating loss included a non-cash goodwill impairment of $34.3 million related to the Torgau facility and a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.
Interest expense in the first half of 2025 was relatively flat at $56.6 million compared to $54.4 million in the same period of 2024.
In the first half of 2025, other expenses were $1.3 million compared to other income of $9.2 million in the same period of 2024. Other expenses in the first half of 2025 primarily consisted of foreign exchange losses on the revaluation of dollar denominated cash held at our operations as the dollar weakened against the euro at the end of June 2025 mostly offset by interest earned on cash. In the first half of 2024, other income primarily consisted of interest earned on cash and foreign exchange gains on the revaluation of dollar denominated cash held at our operations as the dollar strengthened at the end of June 2024.
During the first half of 2025, we had an income tax recovery of $1.1 million, or an effective tax rate of 1%, and in the same period of 2024, we had an income tax recovery of $5.1 million, or an effective tax rate of 6%. Our effective tax rates were different from the statutory rates of the jurisdictions in which we operate as we do not recognize tax
QUARTERLY REPORT - PAGE 34
recoveries for certain entities which we do not expect to realize a tax benefit. In the first half of 2024, the effective tax rate was also impacted by the non-deductibility of the non-cash goodwill impairment.
In the first half of 2025, our net loss was $108.4 million, or $1.62 per share, compared to $84.3 million, or $1.26 per share in the same period of 2024. The net loss in the first half of 2024 included the non-cash goodwill impairment of $34.3 million, or $0.51 per share, and the non-cash loss of $23.6 million, or $0.35 per share, recognized in connection with the dissolution of the CPP joint venture.
In the first half of 2025, Operating EBITDA decreased to $26.2 million from $94.0 million in the same period of 2024 primarily due to higher per unit fiber costs, lower pulp and manufactured products sales realizations, negative foreign exchange impacts from a weaker dollar and the non-cash impairment recognized on hardwood inventory partially offset by higher lumber sales realizations.
Pulp Segment – Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024
Pulp segment revenues, comprised of pulp, energy and chemical revenues, in the first half of 2025 decreased by approximately 11% to $713.4 million from $799.8 million in the same period of 2024 driven by lower pulp revenues.
Pulp revenues in the first half of 2025 decreased by approximately 11% to $670.7 million from $755.1 million in the same period of 2024 as a result of lower sales volumes and realizations.
Energy and chemical revenues in the first half of 2025 modestly decreased to $42.7 million from $44.7 million in the same period of 2024 driven by lower chemical sales realizations.
Total pulp production in the first half of 2025 decreased by approximately 5% to 916,026 ADMTs from 960,599 ADMTs in the same period of 2024 primarily due to the dissolution of the CPP joint venture in March 2024. In the first half of 2025, our pulp mills had 51 days of downtime (approximately 70,600 ADMTs) which included 45 days of planned annual maintenance and six additional days due to slower than expected start-up. In the first half of 2024, our pulp mills had 44 days of downtime (approximately 77,600 ADMTs) which included 37 days of planned annual maintenance and seven additional days due to slower than expected start-up.
We estimate that planned annual maintenance downtime in the first half of 2025 adversely impacted our Segment Operating EBITDA by approximately $55.9 million, comprised of approximately $40.6 million in direct out-of-pocket expenses and the balance in reduced production. Many of our competitors that report their financial results using International Financial Reporting Standards, referred to as “IFRS”, capitalize their direct costs of maintenance downtime.
Total pulp sales volumes in the first half of 2025 decreased by approximately 9% to 904,610 ADMTs from 998,984 ADMTs in the same period of 2024 driven by lower production and the timing of sales.
In the first half of 2025, third-party industry quoted average list prices for NBSK pulp in Europe and North America increased from the same period of 2024 primarily due to stable demand and supply constraints. In the first half of 2025, the third-party industry quoted average net price for NBSK pulp in China modestly decreased from the same period of 2024 as a result of weaker demand driven by the current economic climate and global trade policy uncertainty. Third-party industry quoted average list prices for NBSK pulp in Europe and North America were
QUARTERLY REPORT - PAGE 35
approximately $1,552 per ADMT and $1,787 per ADMT, respectively, in the first half of 2025 compared to approximately $1,501 per ADMT and $1,568 per ADMT, respectively, in the same period of 2024. Third-party industry quoted average net prices for NBSK pulp in China were approximately $764 per ADMT in the first half of 2025 compared to approximately $778 per ADMT in the same period of 2024. Prices quoted for China are net of discounts, allowances and rebates whereas quoted prices for Europe and North America are before applicable discounts, allowances and rebates.
In the first half of 2025, the third-party industry quoted average list price for NBHK pulp was relatively stable in North America compared to the same period of 2024. In the first half of 2025, the third-party industry quoted average net price for NBHK pulp in China decreased from the same period of 2024 due to weaker demand driven by the current economic climate and global trade policy uncertainty and the market absorbing increased hardwood capacity, which came online in 2024. Third-party industry quoted average list prices for NBHK pulp in North America were approximately $1,289 per ADMT in the first half of 2025 compared to approximately $1,330 per ADMT in the same period of 2024. Third-party industry quoted average net prices for NBHK pulp in China were approximately $556 per ADMT in the first half of 2025 compared to approximately $698 per ADMT in the same period of 2024.
Our average NBSK pulp sales realizations in the first half of 2025 were relatively flat at $771 per ADMT from $766 per ADMT in the same period of 2024 as higher prices in North America and Europe were offset by lower prices in China. In the first half of 2025, average NBHK pulp sales realizations decreased by approximately 13% to $572 per ADMT from $660 per ADMT in the same period of 2024 driven by lower prices in China.
In the first half of 2025, we had a negative foreign exchange impact of approximately $10.9 million on Segment Operating EBITDA compared to the same period of 2024 as a result of foreign exchange losses on the revaluation of dollar denominated accounts receivables held at our operations as the dollar weakened relative to the euro and Canadian dollar at the end of June 2025.
In the first half of 2025, we recorded a non-cash impairment of $11.0 million against hardwood inventory at our Peace River mill primarily due to low hardwood pulp prices.
Costs and expenses in the first half of 2025 decreased by approximately 7% to $729.6 million from $780.5 million in the same period of 2024 driven by lower pulp sales volumes. This decrease was partially offset by higher per unit fiber costs, the non-cash impairment recognized against hardwood inventory and negative foreign exchange impacts from a weaker dollar. In the first half of 2024, costs and expenses included a non-cash loss of $23.6 million recognized in connection with the dissolution of the CPP joint venture.
Overall average per unit fiber costs increased by approximately 5% in the first half of 2025 compared to the same period of 2024 primarily as a result of higher per unit fiber costs at our German mills due to reduced supply. Per unit fiber costs at our Canadian mills were relatively steady in the first half of 2025 compared to the same period of 2024.
Transportation costs for our pulp segment in the first half of 2025 decreased by approximately 12% to $68.3 million from $77.4 million in the same period of 2024 driven by lower pulp sales volumes partially offset by higher freight rates.
In the first half of 2025, Segment Operating EBITDA for the pulp segment decreased to $39.6 million from $100.1 million in the same period of 2024 primarily due to lower pulp sales realizations, higher per unit fiber costs, the non-cash impairment recognized against hardwood inventory and negative foreign exchange impacts from a weaker dollar.
QUARTERLY REPORT - PAGE 36
Solid Wood Segment – Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024
Solid wood segment revenues in the first half of 2025 modestly decreased to $240.0 million from $249.3 million in the same period of 2024 as higher lumber revenues were more than offset by lower revenues from our other products.
Lumber revenues in the first half of 2025 increased by approximately 20% to $131.7 million from $109.8 million in the same period of 2024 primarily due to higher sales realizations and volumes.
Energy, biofuels and wood residuals revenues in the first half of 2025 decreased by approximately 16% to $27.3 million from $32.6 million in the same period of 2024 primarily as a result of lower biofuels sales volumes.
In the first half of 2025, manufactured products revenues decreased by approximately 40% to $31.2 million from $52.1 million in the same period of 2024 due to lower sales realizations and volumes as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.
Pallet revenues in the first half of 2025 decreased by approximately 9% to $49.8 million from $54.8 million in the same period of 2024 as a result of lower sales volumes as weak economic conditions in Europe continue to negatively impact demand.
Lumber production in the first half of 2025 modestly increased to 248.2 MMfbm compared to 238.4 MMfbm in the same period of 2024 due to the timing of planned maintenance downtime and higher production at our Torgau facility.
Lumber sales volumes in the first half of 2025 increased by approximately 6% to 251.5 MMfbm from 238.0 MMfbm in the same period of 2024 driven by higher production.
Average lumber sales realizations in the first half of 2025 increased by approximately 14% to $524 per Mfbm from $461 per Mfbm in the same period of 2024 as a result of lower supply and improved demand in both the U.S. and European markets. The U.S. market accounted for approximately 46% of our lumber revenues and approximately 39% of our lumber sales volumes in the first half of 2025. The majority of the balance of our lumber sales were to Europe.
Manufactured products sales realizations decreased to $1,955 per m3 in the first half of 2025 from $3,128 per m3 in the same period of 2024 as the ongoing elevated interest rate environment in the U.S. negatively impacted demand.
Fiber costs were approximately 80% of our lumber cash production costs in the first half of 2025. In the first half of 2025, per unit fiber costs for lumber production increased by approximately 18% compared to the same period of 2024 due to strong demand.
QUARTERLY REPORT - PAGE 37
Transportation costs for our solid wood segment in the first half of 2025 were relatively flat at $26.7 million compared to $27.9 million in the same period of 2024.
In the first half of 2025, Segment Operating EBITDA for the solid wood segment decreased to negative $5.2 million from positive $2.2 million in the same period of 2024 as a result of higher per unit fiber costs and lower manufactured products sales realizations partially offset by higher lumber sales realizations.
Liquidity and Capital Resources
Summary of Cash Flows
Net cash used in investing activities
We operate in a cyclical industry and our operating cash flows vary accordingly. Our principal operating cash expenditures are for production costs, such as fiber, chemicals and energy costs, and other material operating costs for maintenance, freight and labor. Working capital levels fluctuate throughout the year and are affected by maintenance downtime, changing sales patterns, seasonality and the timing of receivables and sales and the payment of payables and expenses.
On August 1, 2025, we announced that our board of directors had suspended our quarterly dividend. In making this determination, the change was considered prudent from a capital allocation standpoint in light of ongoing market and global trade environment uncertainties. The declaration, timing and amount of any future dividends will be subject to the discretion and approval of our board of directors based upon consideration of, among other things, our financial condition, capital allocation strategy, liquidity requirements, earnings and market conditions.
Cash Flows from (used in) Operating Activities. In the six months ended June 30, 2025, cash used in operating activities was $7.5 million compared to cash provided from operating activities of $33.0 million in the same period of 2024. A decrease in accounts receivable provided cash of $14.8 million in the six months ended June 30, 2025 and an increase in accounts receivable used cash of $41.8 million in the same period of 2024. Adjusting for inventory impairments of $11.0 million, an increase in inventories used cash of $24.1 million in the six months ended June 30, 2025 and a decrease in inventories provided cash of $4.6 million in the same period of 2024. An increase in accounts payable and accrued expenses provided cash of $16.4 million in the six months ended June 30, 2025 and $18.1 million in the same period of 2024. An increase in prepaid expenses and other used cash of $8.8 million in the six months ended June 30, 2025 and a decrease in prepaid expenses and other provided cash of $5.5 million in the same period of 2024.
Cash Flows from (used in) Investing Activities. In the six months ended June 30, 2025, investing activities used cash of $42.6 million. In the six months ended June 30, 2025, we incurred $44.4 million of capital expenditures primarily related to completion of the wood room project at our Celgar mill, log yard upgrades at our Torgau facility and Friesau mill, sorting line upgrades and other strategic projects at our mass timber facilities, and maintenance projects across our operating segments. In the six months ended June 30, 2025, we received $3.1 million in government grants for capital projects at our mass timber facilities.
In the six months ended June 30, 2024, investing activities used cash of $37.6 million. In the six months ended June 30, 2024, we incurred $36.3 million of capital expenditures primarily related to log yard upgrades and other strategic projects at our Torgau facility, optimization projects at our Mercer Spokane facility, and maintenance projects across our operating segments.
Cash Flows from (used in) Financing Activities. In the six months ended June 30, 2025, financing activities provided
QUARTERLY REPORT - PAGE 38
cash of $16.0 million. In the six months ended June 30, 2025, we borrowed approximately $25.4 million under our revolving credit facilities and we paid dividends of $5.0 million.
In the six months ended June 30, 2024, financing activities used cash of $46.5 million. In the six months ended June 30, 2024, we repaid approximately $35.8 million under our revolving credit facilities and we paid dividends of $5.0 million.
Balance Sheet Data
The following table is a summary of selected financial information as of the dates indicated:
Working capital
635,485
653,466
Long-term liabilities
1,629,767
1,576,619
Sources and Uses of Funds
Our principal sources of funds are cash flows from operations and cash and cash equivalents on hand. Our principal uses of funds consist of operating expenditures, capital expenditures and interest payments on our senior notes.
The following table sets out our total capital expenditures and interest expense for the periods indicated:
Capital expenditures
44,413
36,344
Cash paid for interest expense(1)
Interest expense(2)
As of June 30, 2025, we had cash and cash equivalents of $146.5 million, approximately $291.6 million available under our revolving credit facilities and aggregate liquidity of about $438.1 million.
We have reduced our planned capital expenditures for fiscal 2025 and currently expect them to be between $90.0 million to $100.0 million.
We currently consider the majority of undistributed earnings of our foreign subsidiaries to be indefinitely reinvested and, accordingly, no U.S. income tax has been provided on such earnings. However, if we were required to repatriate funds to the U.S., we believe that we currently could repatriate the majority thereof without incurring any material amount of taxes as a result of our shareholder advances and U.S. tax reform. However, it is currently not practical to estimate the income tax liability that might be incurred if such earnings were remitted to the U.S. Substantially all of our undistributed earnings are held by our foreign subsidiaries outside of the U.S.
Based upon the current level of operations and our current expectations for future periods in light of the current economic environment, and in particular, current and expected pulp and lumber pricing and foreign exchange rates, we believe that cash flow from operations and available cash, together with available borrowings under our revolving credit facilities, will be adequate to finance the capital requirements for our business.
QUARTERLY REPORT - PAGE 39
In the future we may make acquisitions of businesses or assets or commitments to additional capital projects. To achieve the long-term goals of expanding our assets and earnings, including through acquisitions, capital resources will be required. Depending on the size of a transaction, the capital resources that will be required can be substantial. The necessary resources will be generated from cash flow from operations, cash on hand, borrowing against our assets or the issuance of securities.
Debt Covenants
Certain of our long-term obligations contain various financial tests and covenants customary to these types of arrangements. See our annual report on Form 10-K for the fiscal year ended December 31, 2024.
As of June 30, 2025, we were in full compliance with all of the covenants of our indebtedness.
Contractual Obligations and Commitments
There were no material changes outside the ordinary course to any of our material contractual obligations during the six months ended June 30, 2025.
Foreign Currency
As a majority of our assets, liabilities and expenditures are held or denominated in euros or Canadian dollars, our consolidated financial results are subject to foreign currency exchange rate fluctuations.
We translate foreign denominated assets and liabilities into dollars at the rate of exchange on the balance sheet date. Equity accounts are translated using historical exchange rates. Unrealized gains or losses from these translations are recorded in other comprehensive income (loss) and do not affect our net earnings.
As a result of a weaker dollar versus the euro and Canadian dollar as of June 30, 2025, during the six months ended June 30, 2025, we recorded a non-cash increase of $133.6 million in the carrying value of our net assets denominated in euros and Canadian dollars, consisting primarily of our property, plant and equipment. This non-cash increase does not affect our net loss, Operating EBITDA or cash but is reflected in our other comprehensive income (loss) and as an increase to our total equity. As a result, our accumulated other comprehensive loss decreased to $97.7 million.
Based upon the exchange rate as of June 30, 2025, the dollar was approximately 5% weaker against the Canadian dollar and 13% weaker against the euro since December 31, 2024. See “Quantitative and Qualitative Disclosures about Market Risk”.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect both the amount and the timing of the recording of assets, liabilities, revenues, and expenses in the consolidated financial statements and accompanying note disclosures. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increases, these judgments become even more subjective and complex.
Our significant accounting policies are disclosed in Note 1 to our audited annual financial statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2024. While all of the significant accounting policies are important to the consolidated financial statements, some of these policies may be viewed as having a high degree of judgment. On an ongoing basis using currently available information, management reviews its estimates, including those related to accounting for, among other things, future cash flows associated with impairment testing for goodwill and long-lived assets, depreciation and amortization, pension and other post-retirement benefit obligations, deferred income taxes (valuation allowance and permanent reinvestment), the allocation of the purchase price in a business combination to the assets acquired and liabilities assumed, revenues under long-term contracts, inventory impairment, assets and liabilities classified as held for sale and the fair value of disposal groups, legal liabilities and contingencies. Actual results could differ materially from these estimates and changes in these estimates are recorded when known.
QUARTERLY REPORT - PAGE 40
For information about our significant and critical accounting policies, see our annual report on Form 10-K for the fiscal year ended December 31, 2024.
Cautionary Statement Regarding Forward-Looking Information
The statements in this report that are not reported financial results or other historical information are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended.
Generally, forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, or words of similar meaning, or future or conditional verbs, such as “will”, “should”, “could”, or “may”, although not all forward-looking statements contain these identifying words. Forward-looking statements are based on expectations, forecasts and assumptions by our management and involve a number of risks, uncertainties and other factors, many of which are beyond our control, that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, the following:
Risks Related to our Business
QUARTERLY REPORT - PAGE 41
Risks Related to our Debt
Risks Related to Macroeconomic Conditions
Legal and Regulatory Risks
QUARTERLY REPORT - PAGE 42
Risks Related to Ownership of our Shares
Given these uncertainties, you should not place undue reliance on our forward-looking statements. The foregoing review of important factors is not exhaustive or necessarily in order of importance and should be read in conjunction with the risks and assumptions including those set forth under “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2024 and in the other reports and documents we have filed with or furnished to the SEC. We advise you that these cautionary remarks expressly qualify in their entirety all forward-looking statements attributable to us or persons acting on our behalf. Unless required by law, we do not assume any obligation to update forward-looking statements based on unanticipated events or changed expectations. However, you should carefully review the reports and other documents we file from time to time with the SEC.
Cyclical Nature of Business
The pulp and lumber businesses are highly cyclical in nature and markets are characterized by periods of supply and demand imbalance, which in turn can materially affect prices. Pulp and lumber markets are sensitive to cyclical changes in the global economy, industry capacity and foreign exchange rates, all of which can have a significant influence on selling prices and our operating results. The length and magnitude of industry cycles have varied over time but generally reflect changes in macroeconomic conditions and levels of industry capacity. Pulp and lumber are commodities that are generally available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition is generally based upon price, which is primarily determined by supply relative to demand.
Industry capacity can fluctuate as changing industry conditions can influence producers to idle production capacity or permanently close mills. In addition, to avoid substantial cash costs in idling or closing a mill, some producers will choose to operate at a loss, sometimes even a cash loss, which can prolong weak pricing environments due to oversupply. Oversupply of our products can also result from producers introducing new capacity in response to favorable pricing trends. Certain integrated pulp and paper producers have the ability to discontinue paper production by idling their paper machines and selling their pulp production on the market, if market conditions, prices and trends warrant such actions.
Demand for each of pulp and lumber has historically been determined primarily by general global macroeconomic conditions and has been closely tied to overall business activity. Pulp and lumber prices have been and are likely to continue to be volatile and can fluctuate widely over time.
The third-party industry quoted average European list prices for NBSK pulp between 2016 and 2025 have fluctuated between a low of $790 per ADMT in 2016 to a high of $1,635 per ADMT in 2024. In the same period, third-party industry quoted average North American list prices for NBHK pulp have fluctuated between a low of $820 per ADMT in 2016 to a high of $1,620 per ADMT in 2022.
As a key construction material, the pricing and demand for lumber is also significantly influenced by the number of housing starts, especially in the U.S. In the U.S., third-party industry quoted monthly average western spruce/pine/fir (WSPF) 2 x 4 #2&Btr prices between 2016 and 2025 have fluctuated between a low of $259 per Mfbm in 2016 to a high of $1,604 per Mfbm in 2021. Similarly, the demand for CLT and glulam is primarily driven by the wood construction market and increased government policies focused on a low-carbon economy.
QUARTERLY REPORT - PAGE 43
Our mills and operations voluntarily subject themselves to third-party certifications in compliance with internationally recognized, sustainable management standards because end use paper and lumber customers have shown an increased interest in understanding the origin of products they purchase. Demand for our products could be adversely affected if we, or our suppliers, are unable to achieve compliance, or are perceived by the public as failing to comply, with these standards or if our customers require compliance with alternate standards for which our operations are not certified.
A pulp producer's actual sales price realizations are net of customer discounts, rebates and other selling concessions. Accordingly, prices for pulp and lumber are driven by many factors outside our control, and we have little influence over the timing and extent of price changes, which are often volatile. Because market conditions beyond our control determine the prices for pulp and lumber, prices may fall below our cash production costs, requiring us to either incur short-term losses on product sales or cease production at one or more of our mills. Therefore, our profitability depends on managing our cost structure, particularly raw materials which represent a significant component of our operating costs and can fluctuate based upon factors beyond our control. If the prices of our products decline, or if prices for our raw materials increase, or both, our results of operations and cash flows could be materially adversely affected.
Costs
Our production costs are influenced by the availability and cost of raw materials, energy and labor, and our plant efficiencies and productivity. Our main raw material is fiber in the form of wood chips, pulp logs, sawlogs and lumber. Wood chip, pulp log and sawlog costs are primarily affected by the supply of, and demand for, lumber and pulp, which are both highly cyclical. Higher fiber prices could affect producer profit margins if they are unable to pass along price increases to pulp and lumber customers or purchasers of surplus energy.
Currency
We have manufacturing operations in Germany, Canada and the U.S. Most of the operating costs and expenses of our German mills are incurred in euros and those of our Canadian mills in Canadian dollars. However, the majority of our sales are in products quoted in dollars. Our results of operations and financial condition are reported in dollars. As a result, our costs generally benefit from a strengthening dollar but are adversely affected by a decrease in the value of the dollar relative to the euro and to the Canadian dollar. Such declines in the dollar relative to the euro and the Canadian dollar reduce our operating margins and the cash flow available to fund our operations and to service our debt. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
QUARTERLY REPORT - PAGE 44
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from changes in interest rates and foreign currency exchange rates, particularly the exchange rates between the dollar and the euro and Canadian dollar. Changes in these rates may affect our results of operations and financial condition and, consequently, our fair value. We seek to manage these risks through internal risk management policies as well as the periodic use of derivatives.
For additional information, please refer to “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” in our annual report on Form 10-K for the fiscal year ended December 31, 2024.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, referred to as the “Exchange Act”), as of the end of the period covered by this report. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.
It should be noted that any system of controls is based in part upon certain assumptions designed to obtain reasonable (and not absolute) assurance as to its effectiveness and there can be no assurance that any design will succeed in achieving its stated goals.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
QUARTERLY REPORT - PAGE 45
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to routine litigation incidental to our business, including that which is described in our latest annual report on Form 10-K for the fiscal year ended December 31, 2024. We do not believe that the outcome of such litigation will have a material adverse effect on our business or financial condition.
ITEM 1A. RISK FACTORS
There have been no material changes to the factors disclosed in “Item 1A. Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2024.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
ITEM 5. OTHER INFORMATION
QUARTERLY REPORT - PAGE 46
ITEM 6. EXHIBITS
Exhibit No.
31.1
Section 302 Certification of Chief Executive Officer
31.2
Section 302 Certification of Chief Financial Officer
32.1*
Section 906 Certification of Chief Executive Officer
32.2*
Section 906 Certification of Chief Financial Officer
101
The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2025 of Mercer International Inc., formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Interim Consolidated Statements of Operations; (ii) Interim Consolidated Statements of Comprehensive Income (Loss); (iii) Interim Consolidated Balance Sheets; (iv) Interim Consolidated Statements of Changes in Shareholders’ Equity; (v) Interim Consolidated Statements of Cash Flows; and (vi) Notes to the Interim Consolidated Financial Statements.
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 has been formatted in iXBRL.
* In accordance with Release No. 33-8212 of the SEC, these Certifications: (i) are “furnished” to the SEC and are not “filed” for the purposes of liability under the Securities Exchange Act of 1934, as amended; and (ii) are not to be subject to automatic incorporation by reference into any of the Company’s registration statements filed under the Securities Act of 1933, as amended, for the purposes of liability thereunder or any offering memorandum, unless the Company specifically incorporates them by reference therein.
QUARTERLY REPORT - PAGE 47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
By:
/s/ Richard Short
Richard Short
Chief Financial Officer and Authorized Officer
Date: July 31, 2025
QUARTERLY REPORT - PAGE 48